Analyzing the External Environment

Before entering a new market or launching a new product, a business will often conduct a PEST Analysis. This is an in-depth look at the Political, Economic, Social, Technological challenges that exist within the market. Take a look at the PEST Analysis for Uber below.

Uber

Uber is considered the fastest growing taxi-sharing company/app. It has faced various challenges concerning the taxi industry, minimum wage complications, and bannings in countries worldwide. Despite these challenges, it is continuing to grow.

This video explains how Uber works:

Political Factors

• When it was initially developed, Uber didn’t have clear regulations. Insurance issues posed a major challenge - if there was an accident, is the Uber driver at fault, or the company itself?
• Several governments have raised concerns over the regulation of the sharing economy, and Uber has had a disruptive effect on the business of other taxi services.  This has caused political debates.
• There have been political discussions about minimum wage laws in the taxi industry and whether or not Uber was abiding by the laws.
• Governments require commercial licenses, requiring Uber to provide documentation, and there are typically a finite number of licenses available.
• Taxi drivers have protested and lobbied governments over these issues.
• Many governments have banned the taxi sharing app, including Denmark, Italy, Alaska, Austin (Texas), Vancouver (B.C.), and northern Australia.

Economic Factors

• Uber has generated employment for a large number of people. It has also reduced the costs of taxis in general through the forces of competition.
• However, there have been concerns raised over the impact on traditional taxi services.  Is Uber taking career opportunities away? Is Uber creating opportunities only with lower pay?

Socio-Cultural Factors

• Uber’s ease of use has led to its explosion of growth worldwide.
• There have been concerns raised over background checks on drivers, and the aggressive nature of Uber’s corporate culture.
• Uber also faced a huge backlash in the US following Donald Trump’s Muslim ban, when some drivers who didn’t adhere to a taxi strike in New York City aimed to show support and solidarity to those affected.

Technological Factors

• The Uber app integrates geolocation, push notifications, and payment options to provide an excellent customer experience.  A customer can order a taxi and the nearest one will arrive within minutes; this is a dramatic advantage over traditional taxi services.
• Uber allows customers to rate drivers and the company online, and Uber’s growth has been fuelled through word of mouth advertising and social media.

PEST Analysis

A PEST Analysis looks at the big picture to identify factors that might influence a market or a potential new business. These are some questions that a business will need to look at before entering a new international market:

Political Challenges to Consider:

• When is the country’s next local, state or national election? How could this change government or regional policy?
• Who are the most likely contenders for power? What are their views on policies that might affect your organization?
• How well developed are property rights and the rule of law, and how widespread are corruption and organized crime? How are these situations likely to change, and how is this likely to affect you?
• Could any pending legislation or tax changes affect your business, either positively or negatively?
• How will business regulation, along with any planned changes to it, affect your business? Is there a trend towards regulation or deregulation?
• How does government approach corporate policy, corporate social responsibility, environmental issues, and customer protection legislation? What impact does this have and is it likely to change?

Economic Challenges to Consider:

• How stable is the current economy? Is it growing, stagnating, or declining?
• Are exchange rates stable, or do they tend to vary significantly? To protect against large currency fluctuations, many companies choose to pay suppliers and production costs in the same currency as the one they are selling in, thus switching to more local production whenever possible.
• Are customers’ levels of disposable income rising or falling? How is this likely to change in the next few years?
• What is the unemployment rate? Will it be easy to build a skilled workforce? Or will it be expensive to hire skilled labour?
• Do consumers and businesses have easy access to credit? If not, how will this affect your organization?

Socio-Cultural Challenges to Consider:

• What is the population’s growth rate and age profile? How is this likely to change?
• Are generational shifts in attitude likely to affect your business?
• What is society’s level of health, education and social mobility? How are these changing, and what impact does this have?
• What employment patterns, job market trends, and attitudes towards work can you observe? Are these different for different age groups?
• What social attitudes and social taboos could affect your business? Have there been recent socio-cultural changes that could affect this?
• How do religious beliefs and lifestyle changes affect the population?
   

Technological Challenges to Consider:

• Are there any new technologies that you could be using?
• Are there any new technologies on the horizon that could radically affect your work or your industry?
• Do any of your competitors have access to new technologies that could redefine their products?
• In which areas do governments and educational institutions focus their research? Is there anything you can do to take advantage of this?
• How have infrastructure changes affected work patterns (for example levels of remote working)?

 

Coca-Cola’s Global Domination

Coca-Cola is the most widely distributed American product on the market, exceeding even McDonald’s and Subway, and it is quite possibly the world’s most recognizable brand.  However, the price of a Coke varies significantly from country to country. Examine this graph, which displays the (2015) prices of Coke in 70 different countries.

Why is there so much variation between the price of a Coke in Egypt ($0.17) and the price of a Coke in Sweden ($2.15)?

There are a number of factors that can be examined, contributing to the trend of higher soda prices in Europe.

Differences in Sales Volumes

Soda is significantly less popular in Europe than it is in the US and Canada. It is seen as more of a “luxury” and things like “free refills” are pretty much non-existent.  Restaurants in lower price ranges actually lower their prices to lure customers in and make most of their profits off of drinks.

Smaller Distribution Markets

Every country has its own bottling and marketing practices, because of market differences in language and packing.  

Increased Production Costs

In North America, corn syrup and artificial sweeteners are used in Coke, but in many countries, imported cane sugar is used instead.

Variations in Product Preferences

Fanta for example varies in colour and taste between countries. Vanilla Coke was a failure in most of Europe, but found in France, Germany and the Netherlands.  Because there is so much variation in products, production levels are much lower.

More Experience Distribution

Gas is more expensive in Europe, as are labour costs.

Added Taxes

Several European countries (U.K., Ireland, France) have introduced higher tariffs for sugary drinks in an effort to combat obesity and unhealthy eating.

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